How To Find Your Ecommerce Business Niche

So, you've decided that ecommerce is the right business model for you. Congratulations! Now, you've just got to decide on the right product niche.

Related: What's Next for Ecommerce in 2016?

For most people, this is one of the biggest hurdles to getting started. You could end up spending weeks or even months trying to come up with a profitable idea and not get anywhere.

You shouldn't overthink the research process, but you need to be strategic in your choice. If you don't strike a healthy balance, you'll either rush into an unprofitable business that will eat away at your precious resources, or you'll take too long to get into a business that could have started making you money a long time ago. Worse, a competitor may beat you to the punch.

Here are several tips for finding just the right ecommerce business niche.

1. Gauge customer interest.

If you do nothing else, make sure to gauge customer interest. You will never build a profitable business without getting into a product niche that takes into account buyer intent.

You could set up shop and wait for the customers to come pouring in, but that may never happen if your online store is lined with products nobody wants or will buy. So, instead, educate yourself: Use your favorite keyword tool — such as Google Keyword Planner — to find keywords with good search volume. If there isn't enough search volume, you won't be able to make any money in that niche. Conversely, if there's too much search volume, you'll obviously have an opportunity to make money, but standing out against the competition may prove a challenge. More on that in a moment.

Another important step is to figure out whether you're entering a niche that people are passionate about. Golfing and fishing are great examples — people spend hundreds and even thousands of dollars on equipment like clubs, rods, reels, lures.

Also look for niches with problems. If you can solve customer problems with your products, you can attract an audience that’s eager to buy.

2. Analyze the competition.

If you've determined that there are customers in the niche you're getting into, the next step is a competitive analysis.

First, check Amazon for competing products. The odds are stacked against you if the product you're planning on selling is already carried by Amazon. Competing on price will prove an uphill battle.

SEO research is the next step. If you want to create a successful business, you'll need to appear on the first page of Google results, and that may not be possible if the niche is dominated by other sites. Use a tool like Moz Open Site Explorer or SimilarWeb to thoroughly evaluate your competition.

Competition isn't always a bad thing, as it can validate the market you're looking to sell to. The key factor is whether you can outrank and outsmart your competitors.

Related: The Top 5 Reasons You Should Start an Ecommerce Business

3. Figure out your margins and pricing

If you can't make money, there's no point in going into business. With ecommerce businesses, the product margin has to make sense.

This can be a tricky thing in today's market, especially if you're entering a competitive niche. But if your profits are razor-thin, scaling your business will prove difficult, if not impossible. Resist the temptation to go into business with a product that doesn't make you much money.

In general, if your margin is less than 20 percent, you may want to start looking elsewhere — especially if you're going to be drop-shipping.

Pricing is another important consideration, and best practices can vary. Many experts believe that the $100-to-$200 range is the sweet spot. Products in this range aren't too expensive, and should allow for decent profit margin.

This may not be the case with a Fulfillment by Amazon (FBA) business, though it depends on whom you ask. Roughly, $10 to $50 is a good range, but there are many other important factors, such as weight, durability and supplier relationships, that can make or break an FBA product idea.

4. Buy an existing ecommerce business.

For some, starting from scratch won't be the most practical approach to finding a niche.

In a sea of endless options, you can easily get lost. Plus, building a profitable business can take a lot of time and effort, even in a niche with considerable potential. So, save yourself time by looking at sites for sale. These sites already have a track record of bringing in revenue in a niche with interest, or they wouldn't be worth anything.

Although it is a good idea to find a business that doesn't require a lot of technical knowledge to run, the business doesn't necessarily have to pass the "passion test." Since the hard work of legitimizing the business has already been done, you won't have to spend years getting to a profit. If the business meets your profit goals, it will prove worthwhile.

If you have the capital, buying is an option to consider.

5. Take Advantage of Amazon FBA

Fulfillment by Amazon businesses have been growing in popularity. Since fulfillment is handled completely by the online giant, the business owner needn't worry about warehousing products and the logistics of shipping them to customers.

The owner's key responsibilities include finding a product niche and building a relationship with suppliers. Without inventory, you can't make any money, so the supplier piece is key to the entire operation. But Amazon FBA businesses are also scalable, and there are additional earning opportunities, with affiliate commissions and new products.

Also keep in mind that it is possible to buy an Amazon FBA business instead of starting one from scratch.

Final thoughts

When possible, get feedback on your startup idea. If you know what you're doing, you can make educated guesses at what's going to work. However, gaining insights from people already in business allows you to leverage their experience and build on their knowledge.